Reference no: EM133223266

Assignment:

Pricing: I once bought a house where the builder was willing to take 25k off the listed price. He really wanted it off his books. However, our realtor suggested paying him the full price in exchange for a 25k check since she knew we didn't have anything like a refrigerator, washer dryer, drapes etc. Since that was sold with our previous house. In the mind of our realtor this was a win/win for us since the 25k didn't really change the mortgage that much but we could use the cash and the builder gets to keep his price high which is good for the 'comps' comparables, it allows him to show a higher price for his home sales, compared to others in the neighborhood).

a.) Please tell me why selling the home for a higher price is a good thing for the builder, why does he care about the price tag since although he sold the house for full price, he handed us a 25k check making the economics of the transaction basically equal regardless of which option we chose, a 25k deduction in the price of the home, or a 25k check to the buyers who paid full price. (hint: read that last sentence about comps again)

b.) What does the higher price signal to the rest of the market (hint: he was a local, 'custom' home builder and the home was a parade of homes house that just never sold). When I say market I mean potential customers, as well as contractors, his competition etc.

c.) If this builder was determined to offer houses at a discount but did not want to risk damaging his brand or how it is positioned in the market, what solution might help. In other words, how could he offer some houses for less while still offering other houses for more without hurting his current positioning.